Insights 
VT 
Pound Sterling is outperforming in the mid-week session, rising nearly 0.3% against the US Dollar after an unexpected increase in the May CPI figures. Both headline and core inflation rates are in the mid-3% range, climbing after reaching a low in late 2024, with headline just below 2% and core above 3%.
These inflation figures will inform discussions before the BoE meeting on Thursday, where a hold is widely expected. Short-term rate markets anticipate roughly 50 basis points of easing by year-end, with two 25 basis point cuts projected, one by September and another by December.
Despite a recent pullback, the trend remains bullish with GBP trading above the 50-day moving average of 1.3381. Momentum has decreased, while further losses could lead to a reassessment of the technical outlook. Current support is at 1.3400, and resistance is around 1.3550.
Inflation Data And Market Assumptions
What we’re seeing here is a quick uptick in Sterling, gaining some ground mid-week after inflation data came in unexpectedly hotter than anticipated. When we say CPI and core inflation are back in the 3% territory, what it means is price pressures are sticking around longer than many had planned for. This is after they had cooled off notably by late 2024, especially the headline figure which dipped close to the Bank of England’s 2% target. Now, those same prices are climbing back—and both the wider measure and the one that excludes more volatile items have firmed up again.
Markets had largely been operating under the assumption that inflation was behind us, factoring in rate cuts accordingly. There’s been consensus for two standard cuts—one in late summer and another around the end of the year. That view is still in play, for now, but it’s worth considering where this latest data leaves us. The Monetary Policy Committee will be aware that regardless of previous expectations, sticking with the current rate could be better justified given how inflation has edged higher once more.
We’ve noticed that the pound is currently trading above the 50-day moving average, which tells us that the medium-term strength is still intact. That’s not to say it’s surging, but it is definitely holding its ground above key technical levels. However, momentum isn’t as strong as it was. The price action shows signs of slowing, and that tends to precede shorter-term corrections, especially if the upcoming meeting introduces even a hint of dovish commentary.
Technical Insights And Risk Management
From a technical perspective, it’s fairly straightforward. If prices drift lower and fall through the 1.3400 zone, we would have to start questioning the bullish framework we’ve held onto. On the other hand, if Sterling gets a further lift from policymakers taking a more cautious tone on rate cuts, there’s upwards room to stretch till about 1.3550 where sellers have reliably emerged before.
This shift gives derivatives desks fresh inputs when preparing short-term positioning. The repricing of inflation expectations and rate path scenarios isn’t just academic—it changes the way risks are weighted in both directional and volatility strategies. With the latest CPI data likely delaying easing expectations or, at the very least, limiting their scope, we might start to see vol premiums shift accordingly.
We suggest remaining responsive—not just to policy signals, but to any divergence in expectations across rates and FX markets. The option space provides flexibility to lean into moves when momentum returns and hedge out tails if inflation remains bumpy. With price action hovering near both trend signals and support zones, risk needs to be adjusted actively, not retroactively.
